Please don't laugh right away...give this about 10 seconds of thought first. Maybe IRS has already ruled on this, or maybe its been mentioned on the board before. Soon I'll have to make mandatory withdrawals from my Traditional IRA due to hitting age 70 1/2. When I made my contributions in my working years into my Trad IRA, it was from Earned Income dollars. Thus, one could say that a portion of the money I begin to withdraw is just "Deferred Earned Income". So, would I be allowed to claim that percentage of my mandatory withdrawal as "Earned Income", and be allowed to put it into a Roth IRA?It makes sense to me that I would be allowed that option.
No. IRA withdrawals are not earned income.However, you are free to convert whatever amount you choose from a traditional IRA to a Roth IRA at any time. If you are subject to RMDs, you can't convert the RMD amount. So you'd have to withdraw your RMD, then you can convert whatever amount remaining in the IRA that you choose.--Peter
That the contribution to the IRA was originally from compensation, and that the Federal (and usually state) income tax on this contribution amount has been deferred until the amounts are withdrawn, does not defer the 'compensation' character of the original contribution amount. Were this not so, individuals could recontribute mandatory minimum distributions such that the IRA would be perpetual and the required distribution would be meaningless.Perhaps a better example of this is deferred compensation. The argument you raise is best suited to this kind of compensation, as it was indeed 'earned' income subject to employment tax when it was deferred....so when withdrawn in later years (presumably during retirement) and taxed as ordinary income, shouldn't this be eligible for an IRA contribution? The IRS says no. Not exactly sure why, except perhaps that the contribution one makes to their IRA or retirement plan must be from income they or their spouse earned that year, not income earned in previous years.BruceM
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